A primer on the empirical identification of government spending shocks Academic Article uri icon


  • The empirical literature on the effects of government spending shocks lacks unanimity about the responses of consumption and wages. Proponents of shocks identified by structural vector autoregressions (VARs) find results consistent with New Keynesian models: consumption and wages increase. On the other hand, proponents of the narrative approach find results consistent with neoclassical models: consumption and wages decrease. This paper reviews these two identifications and confirms their differences by using standard economic series. It also uses alternative measures of government spending, output, and the labor market and shows that, although there are minor fluctuations within each identification, the disparate results between the two are robust to the alternative measures. However, under the structural VAR approach, the authors find some differenees between the responses to federal and state/local government spending. 2008, The Federal Reserve Bank of St. Louis.

published proceedings

  • Federal Reserve Bank of St. Louis Review

author list (cited authors)

  • Engemann, K. M., Owyang, M. T., & Zubairy, S.

complete list of authors

  • Engemann, KM||Owyang, MT||Zubairy, S

publication date

  • March 2008